The proposal to impose a 2% sales tax on distilled spirits, wine and beer constitutes double taxation; beverage alcohol is already taxed at the wholesale level. Applying the tax in Boston would go against a 2010 referendum that exempted beverage alcohol from the state sales tax. Additionally, imposing the sales tax on Boston area merchants will put Boston stores at a competitive disadvantage vis-à-vis stores in neighboring cities and towns. Consumers will be able to drive to stores bordering Boston for lower prices. If the sales tax is imposed, Boston is projected to lose nearly $10 million in sales and over 130 jobs would be lost as a result.

Haven’t the people already spoken?

In 2010 the citizens of Massachusetts voted to reinstate the Massachusetts historical sales tax exemption on beverage alcohol. Proponents of the exemption correctly pointed out that the state already taxed alcohol at the wholesale level and that adding the sales tax on top of the excise tax constituted double taxation.

If the city of Boston were to now impose a sales tax on distilled spirits, wine and beer it would be going against the wishes of the people.

Beverage alcohol is already overtaxed

The proposal to impose a sales tax on beverage alcohol in Boston comes despite the fact that, by any measure, beverage alcohol is already overtaxed in Massachusetts.

For a typical bottle of distilled spirits sold in Massachusetts 47% of the retail price goes to pay a tax of some kind.

The tax burden on beverage alcohol is already so high that Federal, State and local governments collect over $2 in taxes for every $1 that the industry (suppliers, wholesalers, retailers and restaurants) earn in profit. Government is already an unequal partner in the beverage alcohol business.

Higher prices will put Boston businesses at a competitive disadvantage

Adding yet another tax on top of the industry’s already substantial tax burden will only lead to higher prices.

By forcing Boston prices to go higher, Boston merchants will be put at a competitive disadvantage vis-à-vis stores in surrounding areas. Many people tend to purchase spirits, wine and beer by the case. Thus, the incentive shop outside of Boston will be substantial.

Economic Impact = Jobs destroyed

Unfortunately, people react to higher prices. As prices rise in the Boston area sales will decline. When the state of Massachusetts originally imposed sales tax, in addition to the excise tax, on beverage alcohol, border stores reported losing 10% to 40% of their sales.

Applying the sales tax to just Boston area package stores means that all package Boston package stores become border stores.

The power to tax is the power to destroy. Applying just the lower limit of lost border sales (2%) to Boston means that area package stores will lose around $7 million in revenue. Moreover, Boston area restaurants and bars would lose more than $3 million in revenue due to higher prices. Total sales are projected to decline by nearly $10 million and over 130 jobs would be destroyed in the process.

Alcohol taxes do not act as a deterrent to abusive drinking; population level policies ineffective

Beverage alcohol taxes do not appear to act as a deterrent to abusive drinking. Raising taxes on beverage alcohol only serves to penalize responsible beverage alcohol consumers and does not deter abusers for whom taxes are of little concern. The National Institute on Alcohol Abuse and Alcoholism (NIAAA), the government’s lead agency on alcohol issues, reported in its January 2001 issue of Alcohol Alert that research suggests the heaviest-drinking 5 percent of drinkers do not reduce their consumption significantly in response to price increases, unlike drinkers who consume alcohol at lower levels.

Consistent with the NIAAA findings was a 2009 meta-analysis, “Effects of beverage alcohol price and tax levels on drinking: a meta-analysis of 1003 estimates from 112 studies,” published in Addiction. The study found that heavy drinkers are far less responsive to price increases than the total population of drinkers. And, it is important to note that “heavy” is often defined in alcohol studies as anyone having more than two drinks per day – not necessarily someone who has an alcohol use disorder. If drinkers who consumed five or more drinks per day were isolated these populations would be even less responsive to higher prices.